HB2S-I 

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HB 251 
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CAN THE ACCUMULATION OF 
GREAT WEALTH BE REGU- 
LATED BY TAXATION? 



DISCUSSION OF THE AFFIRMATIVE BY BOW AARON A. 
FERRIS, OF CINCINNATI, AT THE ANNUAL MEET- 
ING OF THE OHIO STATE BAR ASSOCIA- 
TION, AT PUT-IN-BAY, JULY 12, 1906. 




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Can the Accumulation of Great Wealth be 
Regulated by Taxation. 



Discussion of the Affirmative by to. Aaron A. Ferris, of Cincinnati, at the 

Annual Meeting of the Ohio State Bar Association, 

at Put-in-Bay, July 12, 1906. 



Mr. President and Members of the State Bar Association: 

In his address delivered at the laying of the corner stone 
of the office building of the House of Representatives, April 
14, 1906, President Roosevelt spoke these words : 

•'It is important to this people to grapple with the problems 
connected with the amassing of enormous fortunes, and the use 
of those fortunes, both corporate and individual, in business. 
We should discriminate in the sharpest way between fortunes 
well won and fortunes ill won; between those gained as an in- 
cident to performing great services to the community as a whole, 
and those gained in evil fashion by keeping just within the lim- 
its of mere law-honesty. Of course no amount of charity in 
spending such fortunes in any way compensates for misconduct 
in making them. As a matter of personal conviction, and with- 
out pretending to discuss the details or formulate the system, 
I feel that we shall ultimately have to consider the adoption of 
some such scheme as that of a progressive tax on all fortunes, 
beyond a certain amount, either given in life, or devised or be- 
queathed upon death to any individual — a tax so framed as 
to put it out of the power of the owner of one of these enor- 
mous fortunes to hand on more than a certain amount to any 
one individual; the tax, of course, to be imposed by the 
National and not the State Government. Such taxation should, 
of course, be merely aimed at the inheritance or transmission 
in their entirety of those fortunes swollen beyond all healthy 
limits. ' ' 



Whether these words of the president inspired the committee 
in charge to formulate the question under discussion, it is not 
material to inquire. In any event the subject is one which has 
arrested the attention of every thoughtful person concerned in 
the welfare of the human race, and who really is striving for 
the permanency of Republican institutions. 

What, then, prompted the committee to bring before this 
association for consideration, a subject so big with importance; 
in some respects so novel, and in every way so difficult of 
answer? It may be assumed that the committee, alive as to the 
questions of the day ; on the alert as to possible perils confront- 
ing the American people, has felt, and rightly, that the State 
Bar Association of Ohio was a safe body to consider and throw 
light upon any question involving civil and political rights. 

The first thought that arises, suggests the inquiry : Is there 
any peril in sight, or to be foretold from any experience, that 
would warrant any interference with, or regulation of, the 
accumulation of wealth, great or small? 

In a recent issue of the New York World (June 13), a paper 
noted for statistics, there appeared a carefully prepared article, 
with the heading: "Rockefeller fortune will be twenty-five 
billions, seven hundred and thirty-two millions of dollars ($25,- 
732,000,000) if John D. lives to be one hundred years old. 
* * * almost three times as much gold and silver as there 
is in circulation in banks and in all the treasure houses and mints 
on earth to-day." 

This article goes on to state : 

"Nobody knows just how much Mr. Rockefeller is worth 
at the present time. It is doubtful whether he himself could 
give an estimate that was not a million or two off the mark. 
Careful investigators have computed his wealth at $615,000,000, 
within the past few weeks, and this figure is believed to be as 
accurate as it possibly can be. 

"In 1905 Mr. Rockefeller was worth $550,000,000, showing a 
gain for the present year of $65,000,000. In 1900 he had only 
$400,000,000, and the year before that he was poorer still, 
$250,000,000 representing his total wealth. In 1885 he had 
$100,000,000, in 1875 $5,000,000, in 1872 $1,000,000, in 
1870 $50,000, in 1865 $5,000, and in 1855 not a solitary penny. 
During the past 51 years his fortune has increased from noth- 
ing at all to $615,000,000. 




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"It has been repeatedly declared that Mr. Rockefeller is 
already a billionaire, this estimate of his fortune being based 
on the value of his holdings in Standard Oil and other interests. 
As a rule these estimates may often be regarded with security 
as fictitious, being founded more on inflated than actual values. 
So for that reason it is more reasonable to take the most con- 
servative estimate of Mr. Rockefeller's fortune, which places 
his present wealth at $615,000,000. 

"Mr. Rockefeller has over 33 years to live before he reaches 
his one-hundredth birthday. During that time it is reasonable 
to suppose that his millions will be entitled to a natural growth, 
just the same as every other person's money grows when it is 
judiciously invested and carefully guarded. 

"From 1905 to 1906 the natural growth of his millions 
added $65,000,000 to the principal. Year after year at this 
rate the natural growth should become gradually larger and 
larger, until, when Mr. Rockefeller is 99 years old, the mere 
interest on his money should be $2,757,000,000 in one year — over 
four times as much as he is worth at the present time." 

Take the figures given as a conservative estimate of his for- 
tune to-day, cut them in two, and divide by ten, and still his 
fortune would be indecently large, irrational, and beyond all 
wholesome needs or requirements. 

A half century ago, a citizen of the United States, with prop- 
erty worth a million dollars, was considered a phenomenon. 
One could have counted the millionaires in this broad land on 
the fingers of one hand. How is it now? It is probable that 
there are at present more millionaires in the Senate of the 
United States, and of greater wealth, than there were in all 
of the states together fifty years ago. 

Within the last twenty-five years, colossal fortunes have been 
piled up by individuals, and at a rate that is appalling. Enor- 
mous salaries, beyond the powers of any man to earn, and out 
of all reason, have been paid to this and that official of private 
corporations. And what conditions, moral, civil and political 
confront the American nation at this, the threshold of the 
twentieth century? How will the future historian write it 
down, when he comes to tell of those conditions? Will he 
narrate, that it was an age distinguished for its men of letters; 
for its achievements in art, or architecture; for its men noted 
for statesmanship ; for its religious fervor ? No ! he must re- 
cord that we were a nation gone mad in the pursuit of money; 



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that it was an age distinguished for the nurture and develop- 
ment of trusts; celebrated for the great army of grafters in 
political and civil life ; for its abuse of corporate franchises, 
public and private ; for the corruption and degradation of 
municipal government ; for the absence of political virtue ; for 
its tendency to forget and ignore the lessons in civil liberty 
handed down by our forefathers; and for sowing the seeds of 
socialism and anarchy ! 

No one would have the temerity for a moment to contend 
that Mr. Rockefeller or any of the multi-millionaires of his 
class acquired his fortune through superior skill, extraordinary 
and unremitting labor, or through superlative wisdom, single- 
handed and alone. It need not be averred that he has acquired 
it through dishonest dealings, as that term is used in every-day 
English. But he has amassed it through fortuitous manipu- 
lation of public and private corporations, by a skillful process 
of stock-watering; by methods of absorption and elimination — 
absorbing of formidable rivals, and by the suppression and 
wiping out of the more insignificant and smaller operators; 
by stiffling competition; through the modern monstrosity of the 
trust. And the state has made it possible and easy for the in- 
dividual to pile up fortunes, swollen to unhealthy proportions, 
and beyond the dreams of avarice. 

Stopping for a moment to inquire how this modern develop- 
ment has come to pass, it will be interesting to note a few of the 
facts. That the trust is of modern growth, and that the abuse 
of public and private franchises is of very recent date, needs 
no extended research. 

Those delegates from the states, who compiled the Articles 
of Confederation, apparently had no dictionary containing the 
word corporation. So, too, the Federal Constitution, that 
splendid example of organic law, nowhere mentions the term 
"corporation." Coming to Ohio, the Constitution of 1802 con- 
tains not one word about the organization of corporations. 
The nearest approach to any reference to corporations, occurs 
in Article VIII, Section 27, under the Title Bill of Rights, 
where it is provided — 

"That every association of persons, when regularly formed 
within this state,, and having given themselves a name, may, 



on application to the Legislature, be entitled to receive letters 
of incorporation, to enable them to hold estates, real and per- 
sonal, for the support of their schools, academies, colleges, uni- 
versities, and for other purposes." 

Great abuses grew up under this Constitution in the way 
of special privileges, and the Constitution of 1851 followed, 
with the broad provision, that "Corporations may be formed 
under general laws," and with the added proviso for double 
liability. But the double liability provision has now been ab- 
rogated; and with no proper safe-guards in the general statutes, 
the bars have all been let down; and, from no corporations we 
have gone with a bound to incorporations for everything, great 
and small, except "for carrying on professional business." 
The doctor, the lawyer, the school-teacher, and the preacher of 
the gospel, are barred, in Ohio, from becoming incorporated 
for business purposes ! 

The quotation assigned here for discussion puts the verb in 
the potential form. "Can the Accumulation of Great Wealth 
be Regulated by Taxation?" 

Before advancing argument on the proposition whether it 
is possible so to regulate the accumulation, it would perhaps be 
well briefly to consider it in the subjunctive form — as to 
whether it would be advisable so to regulate great wealth. 

It needs no citation of authority in support of the proposition 
that the state or nation should do anything to protect and pre- 
serve itself. Society without government is anarchy. Granted 
that perils confront the state, whether they be political, civil, 
moral or international, it must be conceded that the duty of the 
state is to put promptly in motion every force and means at 
command to avert the danger. There are evidences enough 
that grave perils now confront the American nation; that the 
signs of unrest and discontent are manifest; that corruption, 
permeating almost every branch of business and municipal gov- 
ernment, is dulling the public conscience and sapping the moral 
fibre of the present and the rising generations. Surely it is not 
an overwrought imagination which foresees danger impending 
over American institutions — to be traced for the most part to 
the insane rush for and the accumulation of great wealth. 



If it is the duty of the nation to defend itself from perils, 
there must be a lawful way of accomplishing that defense. 
Motive is the basis for every offense against moral or civil law. 
When a man violates the moral law, he does so through some an- 
ticipated pleasure resulting. If he robs his neighbor, he expects 
thereby to reap some supposed benefit. Make impossible the 
realization of his hopes and the motive will disappear. The 
accumulation of great hordes of money, follows the desire for it, 
and being a menace to Republican institutions, can taxation 
regulate it and thereby avert the danger? 

Taxation the Remedy. 

How can the state /ekpress the madness of mankind for the 
accumulation of colossal wealth? The answer is, make it less 
easy to accumulate; revise completely the whole corporation 
law, which now permits incorporation for practically every 
purpose in business, with nine parts of water to one of sub- 
stance, and then allows the corporation to run and manipulate 
with comparatively no supervision. And then, what is per- 
haps most important of all, compel the corporation and the 
individual to pay his just proportion of taxes. It is notorious 
that our laws are lamentably weak both as respects special and 
unrestricted privileges granted by the state through corporate 
franchises, and through an imbecile system of taxation. Does 
any one suppose that Mr. Rockefeller pays his just proportion 
of taxes as an individual; or that any of the corporations in 
which he is interested pays its just part of taxes for the support 
of government? Is there a corporation in existence anywhere, 
or a multi-millionaire, who pays the taxes he should pay accord- 
ing to law? If there be such a corporation or individual the 
American people would like to know its or his name, and erect 
a monument in memory. It stands to reason that if the laws 
for taxation were wisely made, and rigidly enforced, one great 
impediment to the piling up of immeasurable wealth would be 
established. 

Montesquieu, in his Spirit of Laws, says (Book 13, Vol. 1) : 

"The public revenues are a portion that each subject gives 
of his property, in order to secure, or enjoy the remainder. 
. . . Nothing requires more wisdom and prudence than 



the regulation of that portion of which the subject is deprived, 
and that which he is suffered to retain. The public revenues 
should not be measured by the people's abilities to give, but by 
what they ought to give." 

Further on this writer continues: 

"It is a general rule that taxes may be heavier in proportion 
to the liberty of the subject, and that there is a necessity for 
reducing them in proportion to the increase of slavery. This 
has always been and always will be the case. It is a rule derived 
from Nature that never varies. We find it in all parts, in 
England, Holland, and in every state where liberty gradually 
declines^we come to Turkey." (Book 13, p. 247.) 



Article I, Section 8, of the Federal Constitution provides that 
"the Congress shall have power to lay and collect taxes, du- 
ties, imposts, and excises, to pay the debts and provide for 
the common defense and general welfare of the United States." 

This is a very broad provision of constitutional law. And 
there is to be found in the Constitution no limitation upon this 
power of taxation. 

The Constitution of Ohio, Article XII, Section 2, provides 
that — 

"Laws shall be passed taxing, by a uniform rule, all moneys, 
credits, investments in bonds, stocks, joint stock companies, 
or otherwise; and also all real and personal property, according 
to its true value in money." 

And there is no limitation in the present Constitution upon 
the power of taxation, except that it be uniform. 

Mr. Justice Story, in his Treatise on the Constitution (Sec. 
965), asserts broadly the power to tax for other purposes than 
for revenue, and says: 

"The absolute power to levy taxes includes the power in 
every form in which it may be used, and for every purpose to 
which the Legislature may choose to apply it. This results 
from the very nature of such an unrestricted power. A forti- 
ori it might be applied by Congress to purposes for which the 
nations have been accustomed to apply it. Now, nothing is 
more clear from the history of commercial nations, than the 
fact that the taxing power is often, very often, applied for 
other purposes than revenue. It is often applied as a regu- 
lation of commerce. It is often applied as a virtual prohibition 



upon the importation of particular articles, for the encourage- 
ment and protection of domestic products and industries; for 
the support of agriculture, commerce and manufactures; for a 
retaliation upon foreign monopolies and injurious restrictions; 
for mere purposes of state policy and domestic economy; some- 
times to banish a noxious article of consumption; sometimes as 
a bounty upon an infant manufacture or agricultural product; 
sometimes as a suppression of particular employments; some- 
times as a prerogative power to destroy competition and secure 
a monopoly to the government." 

Judge Cooley, in his work on Taxation, recognizes all these 
purposes for taxation, and, in addition, asserts the power to 
tax for moral obligations. 

Chief Justice Marshall, in the great case of McCullough v. 
Maryland (4 Wheat., 316), involving the constitutionality of 
the law incorporating the Bank of the United States, in render- 
ing the opinion, quotes from the preamble of the Constitution 
those inspired words, where it is declared that: 

' ' We, the people of the United States, in order to form a more 
perfect union, establish justice, insure domestic tranquility, 
promote the general welfare, and secure the blessings of liberty 
to ourselves and our posterity," 

and further citing the clause relating to the enumeration of 
powers conferred upon the Congress where it is provided 
that the Congress shall have the power of making "all laws 
which shall be necessary and proper for carrying into execution 
the foregoing powers, and all other powers vested by the Con- 
stitution in the Government of the United States, or in any de- 
partment thereof," uses these words: 

"The Government which has a right to do an act, and has 
imposed on it the duty of performing that act, must, according 
to the dictates of reason, be allowed to select the means. . . . 
Let the end be legitimate, let it be within the scope of the 
Constitution, and all means which are appropriate, which are 
plainly adapted to that end, which are not prohibited, but con- 
sist with the letter and spirit of the Constitution, are consti- 
tutional." 

The fundamental rule for taxation, as laid down by Adam 
Smith (Wealth of Nations, Bk. 5, Ch. 2, Art. 4) is, that— 

"The subjects of every state ought to contribute towards 
the support of the government, as nearly as possible, in propor- 



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tion to their respective abilities; that is, in proportion to the 
revenues which they respectively enjoy under the protection 
of the state. The expense of government to the individuals of 
a great nation, is like the expense of management to the joint 
tenants of a great estate, who are all obliged to contribute in 
proportion to their respective interests in the estate." 

John Stuart Mill (Pol. Econ., Bk. 2, Ch. 2) says: 

"I see nothing objectionable in fixing a limit to what any 
one may acquire by the mere favor of others, without any ex- 
ercise of his faculties, and in requiring that if he desires any 
further accession of fortune, he shall work for it." 

The English government has, for many years, imposed an in- 
come and a succession tax. By the Succession Act, of August, 
1894 (57 and 58 Vict., Ch. 30), a graded rate of taxation of 
estates was fixed, varying from one pound on estates of one 
hundred pounds and not exceeding five hundred pounds, to 
eight pounds per hundred on estates of 1,000,000 pounds and 
over. 

We have in Ohio the tax on collateral inheritance; and it is 
to be deplored that the law taxing direct inheritance has been 
repealed. But the beneficial workings of this law have been 
fully demonstrated. 

It will doubtless be contended that the state has no right to 
regulate the accumulation of wealth by taxation, on the ground 
that to do so would interfere with individual liberty, and would 
tend to repress individual effort. It would be an insuperable 
objection to such regulation, if lawful and healthy ambition were 
thereby to be stifled. But there is a well recognized line of dis- 
tinction between liberty and license. The state does not hesitate 
to enact laws restraining and punishing the violation of moral 
and civil law. Freedom of speech is a fundamental right. But it 
must not be interpreted to mean that a man has the right to libel 
and slander his neighbor. It permits a man to gratify his appe- 
tites. But it forbids that he shall make a beast of himself. If, 
then, the individual, availing himself of the powers and privileges 
which the state has given him for the acquirement of wealth, 
proceeds to make a glutton of himself by piling up wealth out 
of all proportion to his possible needs, the needs of his family, 
and the demands of society, thereby promoting the cause of 



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anarchy, and imperiling the existence of the state, shall not the 
state interfere and say to the individual : Thus far shalt thou 
go and no farther? 

Suppose for a moment, that the individual, with his accu- 
mulated billions, should take upon himself to buy up all the 
lands in a state or territory. There is no law against his doing 
so. Would not the state have the power, and would it not be 
an imperative duty, to place a limit upon his acquisitions. 

The conclusion is, therefore, that the state can regulate the 
accumulation of great wealth by taxation ; and it is the duty of 
the state promptly to take steps in that direction, to the end 
that justice may be established; that the general welfare may 
be promoted: and that the blessings of liberty may be secured 
to ourselves and our posterity. 






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